'Input Tax Credit' Becomes Vested Right Only If The Conditions Are Fulfilled: Calcutta High Court

The Calcutta High Court has held that the input tax credit (ITC) under Section 16(1) of the GST Act becomes a vested right only if the conditions to take it are fulfilled.

The bench of Chief Justice T.S. Sivagnanam and Justice Hiranmay Bhattacharyya has observed that Section 16(2) does not appear to be a provision that allows input tax credit; rather, Section 16(1) is the enabling provision, and Section 16(2) restricts the credit that is otherwise allowed to the dealers who satisfy the condition prescribed by the interpretation given by the court that the stipulation in Section 16(2) is the restrictive provision is the correct interpretation given to Section 16(1) of the GST Act.

The writ petitioner/assessee sought a direction from the department to refund the tax that is alleged to have been recovered by the appellant in excess of 10% of the disputed tax amount and to prohibit the respondents from taking further cohesive action against the appellant. The order in the writ petition was passed under Section 107 of the Central Goods and Services Tax Act, 2017 and the West Bengal Goods and Services Tax Act, 2017, by which the input tax credit availed by the appellant from the period from November 2018 to March 2019 was denied on the ground that the returns were filed beyond the statutory time limit stipulated in Section 16(4) of the GST Act, which time limit expired on October 20, 2019.

A show-cause notice was issued to the appellant, calling upon the appellant to explain why input tax credit should not be denied as returns for FY 2018–19 were filed beyond the statutory time limit, which is October 29, 2019. The appellant, in a representation dated November 25, 2020, requested an extension of time. On January 4, 2021, the second respondent passed an order directing the appellant to pay tax, penalty, and interest on the ground that the statute has set down a time frame within which a taxable registered person can claim ITC.

The appellant appears to have not paid the tax, penalty, and interest as demanded, and a reminder was sent by the department to deposit the entire dues on or before September 10, 2021. The appellant did not comply with the demand, and the department debited the amount from the electronic cash ledger/credit ledger of the appellant on September 11, 2021. The appellant filed an appeal before the statutory appellate authority. On May 7, 2022, the appellant was informed by the office of the appellate authority that they had not deposited any pre-deposit amount on the disputed demand for tax.

The appellant sent a reply on June 1, 2022, stating that the officer in charge had initiated recovery proceedings and debited a sum of Rs. 11,62,099 from the CGST credit ledger and Rs. 11,34,291 from the SGST credit ledger, along with the interest from each cash ledger balance.

The appellant authority confirmed the order holding that the statute has set a time frame within which the appellant can avail and utilize input tax credit, and the appellant, having done so beyond the time limit, i.e., October 20, 2019, is not entitled to the ITC.

The assessee contended that the time limit under Section 16(4) cannot supersede or override the scheme of the statute, as the operation of Section 16(4) makes the non-obstante provision, namely Section 16(2), meaningless. In other words, Section 16(2) has an overriding effect on Section 16(4), as is evident from the words used in the statute, “entitled to take credit." Thus, it is contended that entitlement to a particular right after fulfilling the prescribed and specified conditions results in a right; “taking” or “availing” or “utilizing” that right through procedural formalities or furnishing a return by the person who is entitled to that right is a matter of his choice.

The respondent bank stated that the statute should be interpreted in light of the entire text, and exception clauses or non-obstante clauses should not be interpreted in isolation from the main enacting provision. The purpose of the non-obstante clause must be ascertained with which the legislature has inserted it. A non-obstante clause is employed to give an overriding effect to some contrary provision but not a complementary provision. It is enacted to give the enacting part of the section, in case of conflict, an overriding effect over the provisions of the Act or the contract mentioned in the non-obstante clause. The language of Section 16 makes it clear that the non-obstante clause in Section 16(2) does not in any manner limit the operation of Section 16(3) or Section 16(4), and they are not contradictory; rather, they all restrict the provisions, are basically complementing each other, and are limiting the scope and operation of Section 16(4).

The court held that the provision under Sub Section (4) of Section 16 is one of the conditions that make a registered person entitled to ITC, and by no means can Sub Section (4) be said to be violative of Article 300A of the Constitution of India.

Counsel For Petitioner: Vinay Shraff

Counsel For Respondent: Priya Sarah Paul

Case Title: BBA Infrastructure Limited Versus Senior Joint Commissioner Of State Tax And Others

Case No.: MAT NO. 1099 OF 2023

Click Here To Read The Order